Coke's 10-cap

Inputs i'm using:

• Market cap: $355B

• Operating Cash Flow: $7.4B

• Capex: $2.1B

• Normalized OCF: $13.5B (stripping out the $6.1 billion Fairlife earn-out. See my previous analysis for more context.)

To calculate maintenance capex, I'm going to take an even more conservative approach and just take out total capex.

Coca-Cola runs an asset-light model because they separate the bottlers from the main Coca-Cola company, so subtracting out total capex isn't a huge stretch.

So, the owners earnings are: $13.5B - $2.1B = $11.4B

Thus, the cap rate = $11.4B / $355B = 3.2% (not great)

KO trades at ~$82. The 10-cap method says buy at roughly $26.50. That's a ~68% haircut from here. Even if I get maximally generous (use net income of ~$13.1B as owner's earnings, assume zero maintenance capex), the buy price only climbs to ~$30, still ~63% below the tape.

This is expected, as 10-cap is our most conservative model for valuation.

I believe we can see the shortcomings of the 10 cap model here. The 10 cap method will essentially never greenlight a wide moat compounder that the market correctly understands. The method is built to find mismatched cash flows. You can buy it at a 10% yield.

If i end up buying Coke, I'm essentially saying, "this cash flow stream is durable and growing, so I'll accept a lower starting yield."

That's the entire point of Buffett's "Inevitable" framing from the 1996 letter: you pay up for certainty. The 10-cap is the opposite philosophy. It's a deep-value screen that treats a high purchase yield as the margin of safety, and it implicitly assumes you can't reliably forecast growth, so it refuses to pay for any.

Sentiment: Netural